2021 (8) TMI 338 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - assessee company being common significant and beneficiary share holder in Pandit Automotive Pvt. Ltd. who advanced loans and advances to Ashok Automotive Sales and Services Pvt. Ltd. - case of the AO was that the assessee is a common significant and beneficiary shareholder in both the entities i.e. PAPL and AASSPL, therefore, the said loan was reached the hands of the assessee being a virtue of common shareholder - CIT(A) also confirmed that the benefit of passing of loan from PAPL with ultimately reached the hands of assessee and rejected the claim of assessee has no role in independent commercial role of two subsidiaries - HELD THAT - Admittedly there is no dispute as the facts emanating from records the PAPL advanced to AASSPL and in which the assessee is a common significant and beneficiary shareholder. It is amply clear the loan of above said amount has been reached to the AASSPL but not the assessee company. The assessee company being major shareholder we cannot say the loan advanced to PAPL reached the hands of the assessee. Therefore, in our opinion, the addition made by the AO as confirmed by the CIT(A) is not justified, if at all any addition to be made u/s. 2(22)(e) of the Act it should be in the hands of AASSPL as loan amount reached the hands of said entity but not the assessee. Therefore, the invocation of provisions u/s. 2(22)(e) of the Act treating an amount as deemed dividend in the hands of the assessee is not justifiable. Hence, the grounds raised by the assessee are allowed.

Summary

Issues:
Whether the CIT(A) justified in confirming the addition made by the AO u/s. 2(22)(e) of the Act in the case where a company advanced loans to another company and the assessee being a common significant and beneficiary shareholder in both companies.

Analysis:
The appeal was against the order passed by the Commissioner of Income Tax (Appeals)-1 for assessment year 2014-15. The assessee did not appear, and the case proceeded ex-parte. The main issue was whether the addition made under section 2(22)(e) of the Act was justified. The AO found that a company had advanced loans to another company in which the assessee was a common significant and beneficiary shareholder. The AO treated the amount as deemed dividend, which was confirmed by the CIT(A).

The assessee argued that the loan was extended to support the business of the recipient company, which was running into losses. The assessee contended that being a common significant and beneficiary shareholder in both companies, any benefits passed on ultimately reached the assessee. The Tribunal noted that the assessee had significant shareholdings in both companies, and the loan was indeed made. However, it was clarified that the loan amount reached the recipient company and not directly the assessee.

The Tribunal held that the addition made by the AO and confirmed by the CIT(A) was not justified. It was stated that if any addition under section 2(22)(e) was warranted, it should be in the hands of the recipient company, as the loan amount reached them and not the assessee directly. Therefore, the grounds raised by the assessee were allowed, and the appeal was allowed in favor of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, stating that the addition made under section 2(22)(e) of the Act was not justified as the loan amount reached the recipient company and not the assessee directly, even though the assessee was a common significant and beneficiary shareholder in both companies.